Bank of England urged to accelerate climate work to reduce risk and grow the economy

Chancellor Jeremy Hunt moved last year to remove climate change from a list of critical Government policy pillars which the Bank of England should support. Subsequently, the Bank’s governor Andrew Bailey stated that he grappled with managing climate-related risks while paring back the level of resourcing given to its environmental workstreams.

Now, more than 50 economists and green economy leaders have written to Bailey warning him that the Bank risks lagging behind its international peers on supporting fast-growing low-carbon industries and adequately preparing for systemic risks linked to the climate crisis.

Their letter, orchestrated by think-tank Positive Money, implores Bailey to do more to build upon the Bank’s top-line commitment to address its financed emissions in line with the UK’s legally binding targets. It urges him to “re-prioritise” work in this area and work with the Government to unlock financing for both the low-carbon transition and levelling up.

A recent CBI Economics report found that the UK’s ‘net-zero economy’ grew 9% year-on-year in 2023 compared to less than 1% of growth for the broader economy.

Additionally, the letter cautions that the UK financial sector is “continuing to underprice climate risks” and nature risks, largely looking at events on a case-by-case basis rather than as systemically linked with the potential to undermine global stability more widely.  It states that the Bank is lagging behind international peers on its risk management approach.

Signatories include economists Cedric Durand, Ann Pettifor and Jason Hickel; former IPCC lead author and ecological economist Julia Steinberger; author and former chair of the UK Sustainable Development Commission Jonathon Porritt; Green Alliance’s head of economy Steve Coulter; activist and journalist George Monbiot and WWF UK’s chief economist Jaren Ellis.

The letter comes shortly after Positive Money accused the Bank of using corporate assets such as bonds for collateral against loans, regardless of the climate and nature impact of the corporations in question.

It stated that the Bank has allocated £165bn to lenders through this process over a ten-year period, accepting bonds from the likes of coal giant BHP Group, plus oil and gas majors Shell and TotalEnergies.

Transition finance review

In related news, the UK-Government-backed review of the nation’s transition finance market has issued a new call for evidence from financial institutions, real economy organisations, professional service providers, civil society and other stakeholders.

Transition finance is defined as finance which supports higher-emitting and hard-to-abate companies, activities and sectors to cut their emissions over time.

Launched in January, the review will assess the UK’s current transition finance market size and recommend interventions to scale it up – including agreeing on guidelines for what should and should not be classified in this way.

The Review will focus in particular on what financial products and services are required to support this transition, it said in a statement. It will also consider how definitions and regulations can be used to ensure “credibility and integrity”.

Architects of the review argue that, while high-polluting businesses should be able to access transition finance, access should be conditional on their having a “credible” plan to reach net-zero and appropriate governance structures.

The credibility of plans, the review floats, could be assessed through whether they align with the Transition Plan Taskforce’s ‘Gold Standard’. This framework requires firms to build on targets with plans to invest, change business processes and models, and develop an appropriate base of skilled workers, among other factors.

The new call to evidence is open until 25 April 2024.

Review lead Vanessa Havard-Williams said: “We are asking for your thoughts on where the greatest opportunities lie for high integrity, scalable transactions, what current structures, frameworks and approaches offer a good starting point, what additional guardrails you would provide to define credible transition finance, and also what you think needs to change.

“The UK has a unique blend of leading financial and professional services and sustainability expertise.  There is a real opportunity to become the principal financial market supporting entities across the world as they respond and contribute to a credible, economy-wide transition.”